Thursday, July 10, 2008

Concept review: property tax calculation

A property has an ad valorem value of $475,0000 in a state that requires a 50% assessment ratio (Texas's assessment ratio is 100% but let's use 50% to make it interesting).  The property owner qualifies for two exemptions.  First, the owner qualifies for a homestead exemption of $25,000.  Second, the owner also qualifies for an additional $12,000 exemption because she is over the age of 60.  The property tax rates for the jurisdiction are as follows:

County tax            4 mills

School district      11 mills

Hospital                2 mills

Fire department     1 mill

Total tax rate        18 mills or .018 (18/1000)

STEP 1: Calculate the assessed value.

      Ad valorem value  x  assessment ratio = assessed value

          $475,000         x         .50              = $237,500

STEP 2: Calculate the taxable value.

      Assessed value  -  exemptions   =  taxable value

          $237,500      -   ($25,000 + $12,000)  =  $200,500

STEP 3: Calculate the property tax due.

     Taxable value  x  millage rate  =  property tax due

       $200,500      x  .018  =  $3,609.00

In addition the property tax due, it would also be useful to know the tax savings from the exemptions and also the effective tax rate.

STEP 4: Calculate the tax savings from exemptions.

     Exemptions  x  millage rate  =  tax savings from exemptions

       $37,000    x  .018  =  $666.00

STEP 5: Calculate the effective tax rate.  The effective tax rate is the ratio of the property tax to the ad valorem value.

                                     Property tax due          $3,609.00

Effective tax rate =   Ad valorem value  =    $475,000  =  0.0076 or .76%

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